TSP-Traditional or ROTH?

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TSP-Traditional or ROTH?

Post by JMK909er »

I am nearing the end of my 30 year career in a year, should I remain in the traditional TSP or the ROTH option in TSP?
I know that with traditional it will generate more money in TSP to grow over the next year, and the ROTH will have less growing power being taxed first.
What are the pros and cons? ANy recommendations?
I have about 260k in my TSP
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Re: TSP-Traditional or ROTH?

Post by FiveK »

See Traditional versus Roth - Bogleheads, and ask about anything relevant that isn't clear. There is a lot of detail there that you probably don't need, but it boils down to the marginal tax rate you'll save by using traditional now, vs. the marginal tax rate you expect to pay when withdrawing from traditional later.
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Re: TSP-Traditional or ROTH?

Post by budren »

Personally, if Roth conversion makes sense for you, I would suggest not doing so in TSP. TSP Roths have more constraints than others. Plus, IIRC, TSP Roth money is subject to RMDs at age 72.

I would suggest opening both a Rollover IRA and a Roth IRA at somewhere like Vanguard. Then rollover the TSP money to be converted into the rollover IRA, then convert to Roth.

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Re: TSP-Traditional or ROTH?

Post by babystep »

With the given info my guess would be traditional TSP but that could change with more info.

All accounts balances, social security, pension etc.
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Re: TSP-Traditional or ROTH?

Post by grabiner »

Since you are nearing the end of your career, you are probably now in a higher tax bracket than you will be in again, particularly if you retire to a lower-tax state.

Therefore, it's better to use the traditional TSP now, and if you are in a lower bracket the year after you retire, you can take that amount out of the traditional TSP and convert to a Roth IRA. If you max out the TSP, this will give you the same balance in the Roth TSP with less tax than if you contributed to the Roth. If you don't max out, this will give you a higher balance.

For example, suppose that you are in a 24% bracket now, and will retire in a 22% bracket. You can pay $7600 out of pocket to contribute $7600 to a Roth TSP, or $10,000 to a traditional TSP. If you convert that traditional TSP to a Roth IRA after you retire, paying 22% tax from the withdrawn amount, you will have $7800 (plus growth at the TSP's growth rate), instead of $7600.
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Re: TSP-Traditional or ROTH?

Post by dharrythomas »

It depends on what your pension plus SS is going to provide, a spouse (and any accounts or pensions), other accounts (if any), your age, whether you intend to work at something else after you retire, what the money is intended for, when you’ll start drawing SS, and what you think is going to happen with tax rates. The default setting is that tax rates revert slightly higher in a few years.

If you’ll have some low income years before you start to draw SS, you might do Roth conversions then. If there is any chance the money might go to charity, traditional is the way to go. If it is targeted at heirs, it is more tax friendly to leave a Roth.

I’m a Fed, have an Army Reserve retirement, and have been using the Roth TSP since I became eligible. The restrictions in the Roth TSP are immaterial, as soon as you retire, you can roll it over into a Roth IRA.

People here answer this question out of reflex, since you have a significant pension the calculations are more nuanced. There are many retired Feds who have good jobs after retirement. Good luck.
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